scrutinity

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SHRI AJIT C. SHAH is renowned Chartered accountant & Practicing atAhmedabad since 32 years.

He has completed his graduation from H. L. College of Commerce. He has

provided services as Chairman, Vice Chairman & Secretary to AhmedabadBranch of WIRC of ICAI. He was elected as Council Member of Western

India Region and also elected as VICE CHAIRMAN of the region. He wasthe President of Chartered Accountants Association and All Gujarat

Federation of Tax Consultants. He was the Co Opted Member of Board OfStudies of ICAI and various committees of Western Region.

Apart from professional activities he has rendered his services to JuniorChamber as Chapter President, State Vice President & Secretary and

National Director. He has been appointed by SEBI as member of InvestorCommittee and Defaulter Committee for three years of Ahmedabad Stock

Exchange. He is also elected as Senate Member of Gujarat University.

He has delivered lectures at various professional associations and Chamberof Commerce on the subject of Taxation. He is an author of 5 books and a

columnist of Divya Bhaskar and Financial Express(Gujarati).


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ISSUES ON SCRUTI NY ASSESSMENT

&

ASSESSMENT PROCEDURE UNDER I .TAX ACT

CA AJIT C. SHAH

B.COM ., L L .B., F.C.A .Inquiry for making an assessment:

According to section 142(1) for the purpose of making an assessment under

the Act, the assessing officer may serve on any person who has made areturn under section 139 or in whose case time allowed under section 139(1)

for furnishing the return has expired a notice requiring him on a date to betherein specified:

( i ) Where such person has not made a return within the time allowed u/s139(1) or before the end of the relevant assessment year ( effective from 1-

4-2006), to furnish a return of his income or the income of any other personin respect of which he is assessable under the Act, in the prescribe form or

( ii ) to produced or caused to be produced , such accounts or documents as

the assessing officer may require or

( iii ) to furnished in writing and verified in the prescribed mannerinformation in such form and on such points or matters as the assessing

officer may require.Scrutiny Assessment;If the assessing officer considers it necessary to ensure that the assessee has

not understated the income or has not computed excessive loss or has not

under paid the tax in any waiver then he may serve a notice on the assesseerequiring him to attend his office or to produced any evidence which he mayrely in support of the return{Section 143(2)(ii)}

Proviso to section 143(2)(ii) provides that no notice u/s 143(2)(ii) shall beserved on the assessee after the expiry of six months from the end of the

financial year in which the return is furnished.The following procedure takes place in a scrutiny assessment.


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( a ) The regular assessment u/s 143(3) starts after the serving of notice u/s143(2)

( b ) The proceedings u/s 143(3) may start on the day specified in thenotice u/s 143(2)

( c ) The assessing officer is empowered to adjourn the hearing to someother day.

( d ) The assessing officer should hear the evidence produced by theassessee on the adjourned day.

( e ) The assessee may produce all the evidence which he may rely insupport of the return.

( f ) The assessee is required to produce such other evidence as theassessing officer may require from time to time on specified points.

( g ) The assessing officer has make an assessment on the basis ofevidence produced by the assessee as well as on the basis of relevantmaterial collected by him.

( h ) The assessment is to be made by the assessing officer by an order inwriting.

( i ) The assessment should be of total income or loss of the assessee.( j ) The assessing officer shall determine the sum payable by the assessee

or refundable to him on the basis of assessment.

Common Areas of inquiry during Scrutiny Assessment Procedure

The issue of notice u/s 143(2) sets the ball rolling for scrutinyassessment.

So far assessee is concerned the scrutiny amounts to opening up a Pandorasbox.The assessing officer may ask for the details of any transaction undertaken

or entered in to by the assessee, whether reported in return or not. The profitand loss account and balance sheet is examined in detail and the entries there

in are gone through thoroughly. Based on that the assessing officer puts

specific questions to the assessee and is bound to satisfy the officer as togenuineness of the transaction in questions. In practice , we have noticedthat there are certain areas/points on which the assessee is generally asked to

furnish evidence/records so as to enable the officer to get satisfied by theexplanation provided.


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I am listing the common areas of inquiry as under:

01. Payment to relatives02. Cash payments

03. Disallowance u/s 40( i ) Payments not allowable u/s 40(a)

( ii ) Payments disallowable u/s 40(b) in case of a firm assessableas such

(iii)

Payments disallowable u/s40(ba)04. Depreciation

05 Business Deductions06. Business Expenditure

07. Cash Credits08. Investment, expenditure etc.09. Gift

10. Trading result11. Increase in capital

12. Stock Statement13. Law Withdrawals

14. Disallowance u/s 43B15. Acceptance / repayment of deposit

16. Addition to fixed assets

Ingredients of scrutiny assessment:

The proceedings for scrutiny assessment start by issue of notice u/s 143(2)requiring assessee either to attend the office of assessing officer or toproduce there any evidence on which assessee may rely in support to his

return. Section 143(3) is procedural in nature and it regulates the conduct ofscrutiny assessment, The other basic ingredients of scrutiny assessment are

as under:

( a ) Time limit for issue of notice u/s 143(2)( b ) Hearing

( c ) Gathering of material and evidence( d ) Burden of proof

( e ) Assessment on different entities( f ) Principles of natural justice


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Section 139 to 158 are covered in Chapter XIV of Income Tax Act 1961 isunder the heading of Procedure for Assessment. These sections covered the

entire procedure begin with submitting return of income, Permanent account

Number, return to be signed by whom, method of accounting, time limit forissue of notice etc. Here we are discussing main proc edure of assessments

and scrutiny assessment.

Section 140A Sel f Assessment :

Under this section, if any tax is payable on the basis of any return required tobe furnished, then such tax shall be paid before the filling of the return shall

be accompanied by proof of payment of such tax (i.e. a copy of challan forself assessment tax) Interest, if any payable for delayed filing of return or fordefault or deferment in payment of advance tax such interest up to the date

of furnishing the return also should be paid along with tax.Self assessment tax is payable after taking in to the consideration of

following tax paid,a)

the amount of tax already paid under this Act;

b)

any tax deducted or collected at source;c)

any relief of tax or deduction of tax paid out side the country ( Sec.

90/90A/91 )d)

any tax credit claimed to be set off in accordance with the provisions

of sec. 115JAA

For failure to pay the self-assessment tax, the assessee would be deemedto be in default u/s 140A(3) and recovery proceedings would be initiatedagainst him. However, there is no provision to levy penalty.

Section 143(1) :Acceptance of Return wi thout call ing the assessee :

This section provides that where a return has been filed, such return shallbe processed in the manner prescribed below:

The total income or loss of an assessee shall be computed, after makingfollowing adjustments to the total income or loss in the return-


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a)

any arithmetical error in the return; or

b)

an incorrect claim, if such incorrect claim is apparent from anyinformation in the return.

c)

the sum payable by, or the amount of refund due to, the assessee shallbe determined after adjustment of the tax and interest, if any

computed under clause (b) by any tax deducted or collected at source,any advanced tax paid, any self assessment tax paid and any amount

paid otherwise by way of tax or interestd)

an intimation is to be send demanding tax or issuing refund as the

case may be;

In short it is a simple procedure for accepting the return as it is submitted byan assessee.

SCRUTINY ASSESSMENT:

Every year Central Board of Direct Taxes issue Guidelines for selection

of cases for scrutiny, and according the cases for scrutiny are beingselected. Normally every year they issue guidelines in the month of

September, i.e. last days for issue of notices, before that many noticeshave already been issued.

Processing of returns of Asst. Yr. 2009-10 Steps to clear backl og :

In suppression and modification of Instruction No 5/2010, dated 21-07-2010, CBDT has taken following decisions:

i ) In all the returns filed in ITR-1 and ITR-2, for asst. yr. 2009-10,

where the aggregate TDS claim does not exceeds Rs. 3/ Lakhs and

where the refund computed does not exceed Rs. 25,000 the TDS claimof the tax payer shall be accepted at the time of processing of thereturn provided that the TDS payment reported in AS 26 is more than

Rs. Zero.ii) In all the returns filed in forms other than ITR 1 and ITR 2, for the

asst. yr. 2009-10 , where the aggregates claim does not exceed Rs.


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3/Lakhs and the refund computed does not exceed Rs. 25,000 and

there is at least 10 % matching of TDS amount claimed, the TDSclaim shall be accepted at the time of processing of the return.

iii) In all remaining cases, TDS credit shall be given after dueverification.Instruction No 7/2010 dated16.08.2010

Processing of returns of Asst. Yr. 2010-11 Steps to clear backlog :

The issue of processing of returns for asst. yr. 2010-11 and giving credit

for TDS has been considered by the Board. In order to clear the backingof returns, the following decision have been taken:

i ) In all returns(ITR 1 to 6), where the difference between theTDS claim and matching TDS amount reported in AS 26 data

does not exceed Rs. 1 lac, the TDS claim may be acceptedwithout verification.

ii ) Where there is zero TDS matching , TDS credit shall beallowed only after due verification. However in case of returns

of ITR 1 & 2, credit may be allowed in full, even if there is zeromatching, if the total TDS claimed is Rs. Five thousand or

below.iii)

Where there are TDS claims with invalid TAN, TDS credit for

such claims is not to be allowed.iv)

In all other cases TDS credit shall be allowed after dueverification.I nstruction NO 2/2011, dated 09/02/2011.

Best Judgment Assessment( Section 144)

If any person fails to furnished return of income or revised return ofincome voluntarily or fails to comply notice u/s 142(10 or submitted

return but fails to comply notice u/s 143(2) of the Act, the assessingOfficer, after taking in to account all relevant materials which he hasgathered, shall after giving the assessee an opportunity of being heardmake the assessment under this section, which is known as BestJudgment or Ex party Assessment.


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I ncome escaping assessment ( Secti on 147 )

If the Assessing Officer has find or reason to believe that any incomechargeable to tax has escaped, he may issue notice u/s 148 mentioning

the fact and asked for explanation. Where an assessment made u/s143(3) of the Act, no action shall be taken after the expi ry of fouryears from the end of the relevant asst. yr.

Poser 1.

The assessing officer has issued notice u/s 143(2) to the assessee on

10-08-2010. The assessee replied by letter contended that in view of

the CBDTs Instruction dated 07-08-2010 the assessees case could

not be taken for scrutiny. The said instruction received in the office of

the A.O. on 17-08-2010, the A.O. rejected the application of assessee.

What is the remedy with the assessee ?

Poser 2.

Assessing officer issued notice of hearing u/s 143(2) in the name of

assessee Mr.A. Individual and not in the status of HUF. Assessee

objected to the notice issued in wrong status and pointed out the

defect in the notice. A. O. rejected the objection on the ground that it

was clerical error and relying on the provision of section 292B, held

the notice to be valid and made assement u/s 143(3). Whether the

action of A.O. is correct ?


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